Bermuda is a key participant in the global reinsurance industry. But now some are speculating that its future is uncertain, as competition from other jurisdictions, new tax legislation, and a fragile global economy threaten future success. Caroline Foulger looks at how Bermuda is rising to the challenge.
The Bermuda reinsurance industry has a strong tradition of self-regulation, which partners well with the Bermuda Monetary Authority’s (BMA) independent oversight. Regulation is tailored for the market with which it does business – the “wholesale buyer”, a sophisticated public or private company – rather than the “retail buyer”, the individual consumer.
New companies are formed and operational in Bermuda in a matter of weeks, encountering much less bureaucracy and red-tape than in other jurisdictions. Similarly, entry into new lines of business, or the establishment of rates, can be immediately responsive to market changes and opportunities, rather than requiring regulatory approval. Speed to market is a huge factor for reinsurers when choosing a domicile and Bermuda has always excelled in this area.
The BMA is taking significant steps to ensure Bermuda companies conform to the highest solvency standards, ensuring appropriate equivalence to recognise global benchmarks such as Solvency II. Additionally, the regulator and government take their responsibilities to safeguard against potential international fiduciary abuses very seriously, recently enhancing anti-money laundering practices to world-class levels.
With a global focus on transparent information exchange, Bermuda is working to achieve the recent benchmarks issued by the Organisation for Economic Co-operation and Development (OECD). Bermuda has been sharing information with the United States for more than 20 years. The Minister of Finance recently announced that 11 Tax Information Exchange Agreements (TIEAs) have been signed and a further three will be signed in the near term. This will ensure Bermuda exceeds the OECD/G20 criteria deemed necessary for countries to be assessed as meeting international tax transparency standards.
There is continued coverage of “tax havens” and Bermuda, like other financial centres, has been facing increased pressure. Taking the US as an example, it is important to point out that the most acute focus of tax authorities appears to be on recovering and preventing lost tax revenues either by (illegal) transactions constructed for tax avoidance, or (legitimate) use of zero or low tax rate jurisdictions (for example, by group structuring) to reduce tax exposure in the US.
Bermuda’s reinsurance market players are therefore unavoidably swept up by some of the proposed legislation because they commonly have US affiliates. However, Bermuda reinsurers were never the intended target of this legislation as the purpose of their domicile in Bermuda is for business reasons. The Association of Bermuda Insurers and Reinsurers (ABIR) and the Minister of Finance are actively engaged in educating US policymakers on the difference between Bermuda and other so-called tax havens.
“In Canada and certain parts of the EU, tax authorities are aggressively targeting multinational companies.
Vital economic role
This education emphasises the fact that, most notably, Bermuda reinsurers provide tremendous support for the domestic insurance market in Florida and other US disaster-prone states, and it provided billions of dollars in payouts on claims from the 2005 and 2008 US hurricanes. This money has helped stabilise regional economies in the wake of natural disasters by assisting in the rebuilding of communities. Implementing taxes on Bermuda-based reinsurance companies with US connections will not
provide anything like the tax dollars to replace this important claims contribution. Furthermore, the reinsurance capacity needed for such events will only increase as climate change patterns continue to evolve.
Bermuda continues to take proactive steps to protect its position as the reinsurance domicile of choice. Rates are up 10% to 20% on core lines and CEOs are focused on optimising existing capital and sourcing additional capital to take advantage of all the opportunities. Taking into account the island’s excellent reputation and the steps it is taking to meet international requirements; it appears as if Bermuda’s status as the favoured domicile for reinsurers will not alter anytime soon.
Caroline Foulger is an insurance partner at PricewaterhouseCoopers Bermuda.
Key ingredients for Bermuda's success
- A concentration of industry talent and intellectual capital;
- An established legal framework and infrastructure;
- Proximity to market (US and UK) and local access to leading brokers;
- A sophisticated regulator facilitating - speed to market.
- A low taxation environment;
- A developed economic and political backdrop;
- A proven track record of capitalising on opportunity.
- An ability to anticipate threats and proactively take steps to counter them.